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Factoring: A source of Business Funding

Home >> Articles >> Factoring: A Source of Business Funding

Factoring, invoice factoring, or accounts receivable financing means selling your company's invoices at a discount to a finance company for immediate capital. Factoring makes it possible for your company to utilize funds that otherwise would not be available during a normal billing cycle.

In other words, invoice factoring or selling of an accounts receivable invoice to a "factor" helps your business obtain the cash flow it needs. Prior to that there are a few key points to be emphasized:

  • Elimination of bad debt: A non-recourse factor presupposes the risk of bad debt, thus eliminating this expense from the business' income statement.

  • Invoice processing: In invoice factoring, �factors� usually handle a majority of the work associated with processing invoices. This includes posting invoices, depositing checks, producing regular computer reports and entering payments.

  • Unrestrained capital: Invoice factoring is the only source of financing that grows with your sales. This means that as sales increase, additional money becomes instantly available. In this way, your business constantly grows and is also able to meet increasing demand.

  • Advantage of timely payment: In your business transaction you can save 2 - 5% of your raw materials cost since you have the money to pay within ten days. In addition to volume purchasing, you can considerably lessen the true cost of factoring.

  • Avoid early payment discounts to your clients: Since you are receiving your money without delay, you do not have to offer early payment discounts. Factoring will save you every dollar in discounts that your clients are currently taking.

  • Don't give up equity: Invoice factoring ensures that you do not have to give up any equity in the company or take on any partners with factoring.

  • Don't invite any additional debt: People have a misconception that factoring is a loan. This is not true; invoice factoring is not a loan. Therefore, your business will not incur any additional debt.

In invoice factoring, the first transaction usually takes 3 to 5 days. Once the account has been set up, cash can be advanced toward your invoices to your bank. People mistakenly believe that there are monthly obligations with invoice factoring. As factoring is not a loan there is no debt repayment. Moreover, you are in control of how much you factor and when, depending on your personal cash flow needs.

If you are looking for an invoice factoring company that will help your company grow, then Magnolia is there for you. For more information on factoring, factoring invoice discounting, invoice factoring company and receivable management, please visit www.magfinancial.com.

 

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